The Quick Read: Neither product is built for investing, and FINRA, the regulator that oversees brokers and investing, warns that borrowing against your home to invest is always risky. A cash-out refinance replaces your first mortgage with a larger one. A home equity loan adds a second mortgage on top of the loan you keep. If you go ahead anyway, the better fit usually depends on what your current first mortgage looks like, because that decides whether replacing it makes sense.
A cash-out refinance fits the homeowner whose existing first mortgage is a poor one to keep, or who needs a large sum and can live with resetting the whole loan. A home equity loan fits the homeowner with a first mortgage worth keeping and a smaller amount to borrow. Both put your house behind the money. And the portfolio can fall while the payment keeps coming.
Cash-out refinance estimate
The starting figures are an example value with a balance and a cash request in proportion. Replace them with yours.
Editable benchmark: 7.18% as of November 5, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not a cash-out refinance quote.
Illustrative starting assumptions: a $350,000 home value, a $193,000 current balance, the agency cap on a one-unit principal residence, a thirty-year term at the current Freddie Mac benchmark, and property taxes and insurance estimated at typical national rates. Every field is editable.
Illustrative estimate only — not a Loan Estimate, approval, quote, or commitment to lend. The rate field carries the weekly Freddie Mac thirty-year conventional benchmark, a market reference and not a cash-out refinance quote; a cash-out loan is priced by the lender at lock. The cash available is the loan the program cap allows less the balances paid off, before closing costs, which are not included. The HELOC line is the program’s combined loan-to-value ceiling applied to the same value and balance. Taxes and insurance are editable estimates. Licensed in sixteen states for consumer mortgages.
Side-by-Side
| Factor | Cash-Out Refinance | Home Equity Loan |
|---|---|---|
| Lien position | New first mortgage | Second mortgage |
| Existing loan | Paid off and replaced | Stays in place |
| Monthly payments | One | Two |
| Leverage (conventional) | 80% LTV, one-unit primary home | Combined with first mortgage, per lender |
| Seasoning | Loan being paid off at least 12 months old | Set by the second-lien lender |
| Mortgage insurance | Typically none at or below 80% LTV; a wholesale lane reaching 89.99% LTV with no mortgage insurance is the exception | Generally not part of a second lien |
| Credit floor | Wholesale conventional starts at 620 | Varies by lender |
| Occupancy | Primary, second home or investment property | Varies by lender |
| Documentation | Full file, appraisal, income and asset review | Full file with combined-debt review |
Program figures reflect select wholesale guidelines and are subject to lender guidelines and full file review. Nothing here is a commitment to lend.
How Each One Works
A cash-out refinance is a new first mortgage that is larger than what you owe. The new loan pays off the old one, covers closing costs, and sends the rest to you. Because the new terms apply to the whole balance, you are not just borrowing the cash portion. You are resetting everything. Lendmire’s cash-out refinance programs page lays out the program side of that.
A home equity loan works differently. Per the federal consumer-finance regulator’s guide to using home equity, it is a second mortgage with a second, separate payment. You get a lump sum, and your first mortgage stays exactly as it is. The same guide warns that a cash-out refinance may extend the time it takes to pay off your mortgage and may raise the monthly payment.
One point surprises people. Conventional cash-out rules place no restriction on how you use the money. Freddie Mac’s guide defines a cash-out refinance as a mortgage with no specific restrictions on the use of proceeds. So no rule blocks you from buying stocks with it. That is not the same as saying it is wise. Hold that thought.
Key Terms Defined
Cash-out refinance: A new first mortgage larger than your payoff, with the difference paid to you.
Home equity loan: A second mortgage that gives you a lump sum while your first mortgage stays in place.
LTV (loan-to-value): The loan balance as a percentage of the home’s appraised value.
Seasoning: The minimum time a loan or ownership must exist before a new cash-out loan is allowed.
Limited cash-out refinance: A rate-and-term style refinance that permits only incidental cash back.
Lien: A legal claim on your home that secures a loan, which is why default can lead to foreclosure.
When a Cash-Out Refinance Is the Better Fit
A cash-out refinance tends to win in three situations.
First, your current first mortgage is not worth protecting. If replacing it costs you nothing meaningful in terms or structure, resetting is a smaller sacrifice. Second, you want one payment instead of two. Third, you need a larger amount than a second lien would typically reach, since conventional cash-out can go to 80% LTV on a one-unit primary residence. Some borrowers also qualify for a wholesale lane that reaches 89.99% LTV with no mortgage insurance at a 680 score and a 50% ratio on a thirty-year fixed, primary residence, conforming balance, with its own six months of seasoning. Subject to lender guidelines, of course.
The seasoning rules matter here. Under Fannie Mae announcement SEL-2023-01, a first mortgage being paid off must be at least 12 months old, measured note date to note date. Owners also generally need to have been on title for 6 months, with exceptions for delayed financing, inheritance and legal awards.
Mortgage insurance is the other piece. It is required above 80% LTV on the agency path, except in that no-MI wholesale lane, and it cancels at 80% on request and ends automatically at 78%. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Here’s the catch. A cash-out refinance is the heavier tool. If the first mortgage you hold today is one you would be glad to keep, this route throws it away to reach a sum you could often get another way.
Picture a homeowner with a seasoned first mortgage and a modest sum in mind. For that person, the cash-out refinance puts the entire loan at stake to borrow a small slice. Not ideal.
When a Home Equity Loan Is the Better Fit
A home equity loan makes more sense when your first mortgage is worth keeping. You leave it untouched and borrow a fixed lump sum against the equity beside it. Per the CFPB guide, that fixed sum is usually paired with a fixed payment, unlike a HELOC, which is a revolving line.
The tradeoff is two payments and a second lien. That second lien can complicate a later refinance, since the holder generally has to agree to stay behind a new first mortgage. And the CFPB notes lenders typically want you to keep at least 10% to 20% of your home’s value as equity, whichever product you choose.
If the amount you want is small compared with your first mortgage balance, this is the less disruptive choice. If it is large, a second lien may not reach it, and the cash-out refinance comes back into the picture.
Looking for a government-loan angle? FHA Streamline and the VA IRRRL are rate-and-term programs. Per the HUD FHA Streamline page, a streamline allows no more than $500 in cash, and the VA IRRRL generally allows none. Neither can fund an investment account.
Should You Do This at All?
This is the question that matters more than which loan to pick. FINRA says borrowing against your home to invest is always risky. It covers HELOCs, home equity loans and mortgage refinancing alike. Failure to pay on any loan against home equity can result in foreclosure, and you can lose more than your principal when you invest with borrowed funds.
Think through the downside, because the investing downside and the housing downside are tied together. A margin account can force a sale on a margin call. A home loan has no margin call. Instead, the payment simply keeps arriving, whether your portfolio is up or down. A missed payment can lead to foreclosure.
FINRA also flags a quieter trap: a borrower may be tempted to take on higher-risk investments to beat the loan’s cost. And it notes an increase in fraud schemes involving home loans taken out for investment purposes.
Consider a stress test before committing:
- Could you cover the payment from income if the portfolio dropped sharply and stayed down?
- Do you hold reserves that do not depend on selling the stocks?
- What happens if a job loss and a market decline arrive together?
- Would you still have a comfortable cushion of equity after the combined debt if home values soften?
If any answer is shaky, that is a signal to rethink the plan, not to pick a different loan type.
Worth knowing: the CFPB’s research found that in each year from 2014 to 2019, more than 50% of cash-out borrowers in a national survey chose paying off other bills or debts as their reason, per the CFPB’s cash-out borrower report. Investing was not named as a top use.
The Costs That Don’t Show Up in the Pitch
Both products carry closing costs, and the Loan Estimate is where you compare them line by line. A cash-out refinance also carries pricing adjustments tied to LTV and credit score. Fannie Mae states that a loan-level price adjustment applies to certain cash-out refinances based on those two factors. A home equity loan has its own cost structure.
Then there is the term reset. A cash-out refinance applies new terms to the full balance. If you are years into paying down a first mortgage, you may be restarting that clock for the sake of a fraction of the loan.
Taxes deserve one sentence, not more. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit. Do not assume that interest on money put into investments is deductible.
Practitioner Note
The file is reviewed on equity, credit, ratios, occupancy and seasoning, not on what the money is for. The conversations that go best are the ones where the homeowner has already decided the amount, the payment they can carry without touching the portfolio, and whether keeping the current first mortgage is worth something to them. Settling those three questions first makes the choice of loan product much easier.
The Balanced Verdict
For a homeowner who still holds a first mortgage worth keeping and wants a modest amount, a home equity loan is typically the less disruptive of the two. For a homeowner whose first mortgage is no longer a good fit, or who needs a larger sum and prefers a single payment, a cash-out refinance can make sense. The flip point is your current first mortgage.
But neither beats the real alternative: not borrowing against your home to invest. Investing from monthly cash flow or savings leaves your house out of it. If your balance sits above the conforming limit, the picture shifts; Lendmire’s piece on jumbo versus conforming cash-out covers that side.
If you are weighing a cash-out refinance against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches.
Frequently Asked Questions
Can I legally use cash-out refinance money to buy stocks?
Yes, under conventional cash-out rules. Freddie Mac defines the product as having no specific restrictions on how proceeds are used. Legal is not the same as advisable, though, and FINRA warns about the strategy directly.
Is a home equity loan or a cash-out refinance cheaper?
It depends on your current first mortgage and the amount you need. A home equity loan leaves the first mortgage alone but adds a second payment. A cash-out refinance resets the whole loan. Compare the Loan Estimates side by side, since closing costs and pricing adjustments differ.
How much equity do I have to keep?
Conventional cash-out on a one-unit primary residence reaches 80% LTV, so at least 20% stays in the home. Individual lender guidelines vary. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Can an FHA Streamline or VA IRRRL give me cash to invest?
No. These are rate-and-term programs. FHA allows no more than $500 in cash, and the VA IRRRL generally allows none, apart from energy improvements. Cash from equity on a VA loan requires the separate VA cash-out refinance.
Is the interest tax-deductible if I invest the money?
Don’t assume it is. Tax treatment can depend on your situation, so speak with a qualified tax professional before relying on any deduction.
For your own numbers, request a scenario review with Lendmire.
For current guidelines and terms, see Lendmire’s refinance programs page.
About Lendmire
Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. CFPB, Using home equity to meet financial needs
2. Freddie Mac Guide, Section 4301.5
5. FINRA, Know the Risks of Using Home Equity Loans for Investing
6. CFPB: CFPB Report Finds Cash Out Mortgage Refinance Borrowers Improve Credit Scores
This article is part of Lendmire’s cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How to Size a No Cash-Out Refinance Loan to Your Payoff · Cash-Out Refinance vs Home Equity Loan to Fund Renovations · Cash-Out Refinance Requirements With 30% Equity in the Home
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.